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More competitors or more competition? Market concentration and the intensity of competition

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  • Menezes, Flavio M.
  • Quiggin, John

Abstract

We present a model of competitive interaction among n symmetric firms producing a homogeneous good that includes both Bertrand and Cournot competition as special cases. In our model the intensity of competition is captured by a single parameter—the perceived slope of competitors’ supply functions. We show that total welfare increases monotonically with the intensity of competition and the number of competitors. We then examine how the intensity of competition affects the gains from changing the number of competitors. When competition is intense, most of the gains from extra competition are captured with the entry of a small number of firms and subsequent gains from entry are small. Conversely, when the intensity of competition is small, a reduction in the number of firms can have a large impact on welfare.

Suggested Citation

  • Menezes, Flavio M. & Quiggin, John, 2012. "More competitors or more competition? Market concentration and the intensity of competition," Economics Letters, Elsevier, vol. 117(3), pages 712-714.
    • Handle: RePEc:eee:ecolet:v:117:y:2012:i:3:p:712-714
    DOI: 10.1016/j.econlet.2011.11.001
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    Citations

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    Cited by:

    1. Keita Yamane, 2018. "Mixed duopoly and the indirect effect in linear supply function competition," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 45(4), pages 519-532, December.
    2. Genakos, C. & Grey, F. & Ritz, R., 2020. "Generalized linear competition: From pass-through to policy," Cambridge Working Papers in Economics 2078, Faculty of Economics, University of Cambridge.
    3. Flavio M. Menezes & Jorge Pereira, 2017. "Emissions abatement R&D: Dynamic competition in supply schedules," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 19(4), pages 841-859, August.
    4. Theophilus Lartey & Diana Owusu Yirenkyi & Samuel Adomako & Albert Danso & Joseph Amankwah‐Amoah & Ashraful Alam, 2020. "Going green, going clean: Lean‐green sustainability strategy and firm growth," Business Strategy and the Environment, Wiley Blackwell, vol. 29(1), pages 118-139, January.
    5. Flavio M. Menezes & Jorge Pereira, 2023. "Imperfect competition, emissions tax and the Porter hypothesis," Australian Institute for Business and Economics DP022023, School of Economics, University of Queensland, Australia.
    6. Tan, Yafei & Zhu, Zhaohui, 2022. "The effect of ESG rating events on corporate green innovation in China: The mediating role of financial constraints and managers' environmental awareness," Technology in Society, Elsevier, vol. 68(C).
    7. Tina Kao & Flavio Menezes & John Quiggin, 2014. "Optimal access regulation with downstream competition," Journal of Regulatory Economics, Springer, vol. 45(1), pages 75-93, February.
    8. Andres M. Alonso & Zehang Li, 2023. "Approximation of supply curves," Papers 2311.10738, arXiv.org.
    9. Flavio M. Menezes & John Quiggin, 2020. "The Strategic Industry Supply Curve," Journal of Industrial Economics, Wiley Blackwell, vol. 68(3), pages 523-555, September.
    10. Flavio M. Menezes & John Quiggin, 2023. "Competition in supply functions and conjectural variations: a unified solution," Australian Institute for Business and Economics DP012023, School of Economics, University of Queensland, Australia.
    11. Ganguly, Madhuparna, 2021. "Competition and Innovation: the effects of scientist mobility and stronger patent rights," MPRA Paper 107831, University Library of Munich, Germany.
    12. Menezes, Flavio & Quiggin, John, 2013. "Inferring the strategy space from market outcomes," Risk and Sustainable Management Group Working Papers 151206, University of Queensland, School of Economics.
    13. Delbono, Flavio & Lambertini, Luca, 2016. "Ranking Bertrand, Cournot and supply function equilibria in oligopoly," Energy Economics, Elsevier, vol. 60(C), pages 73-78.
    14. Madhuparna Ganguly, 2020. "Stricter patent regime, scientist mobility and innovation," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2020-037, Indira Gandhi Institute of Development Research, Mumbai, India.
    15. Delbono, Flavio & Lambertini, Luca, 2018. "Choosing roles under supply function competition," Energy Economics, Elsevier, vol. 71(C), pages 83-88.
    16. Cheng, Jiannan & Lian, Feng & Yang, Zhongzhen, 2022. "The impacts of port governance reform on port competition in China," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 160(C).
    17. Delbono, Flavio & Lambertini, Luca, 2015. "On the properties of linear supply functions in oligopoly," Economics Letters, Elsevier, vol. 136(C), pages 22-24.
    18. Marc Escrihuela-Villar, 2016. "On the price effects of collusion and the number of firms," Economics Bulletin, AccessEcon, vol. 36(3), pages 1694-1704.
    19. Keita Yamane, 2020. "Market Structure, Competition, and Optimal Privatization: a Linear Supply Function Approach," Journal of Industry, Competition and Trade, Springer, vol. 20(3), pages 605-615, September.

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    More about this item

    Keywords

    Competition intensity; Number of competitors; Mergers;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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